Central bankers who have expanded their balance sheets to nearly $18trn over the past decade have created “the mother of all asset bubbles”, according to David Roberts, head of fixed income at Kames Capital.
As inflation continues to climb above target, Mr Roberts said central bankers were “running out of excuses” and are not putting up interest rates because of “huge bubbles” in investment markets created by loose monetary policy.
Mr Roberts said: “[Central bankers] have created the mother of all asset bubbles across most financial asset classes and that, coupled with the ongoing need to fund ever-larger government deficits, means they seek any excuse to keep rates as low as possible for as long as possible.”
Finding attractively valued investments is becoming increasingly difficult, according to many professionals.
Tom Becket, chief investment officer at Psigma Investment Management, said: “There is undoubtedly a pandemic of expensive valuations across the world and record low interest rates, which are now unnecessary in many countries, are partly to blame for that.
“You could argue that there are bubbles in most asset classes, so it is a question of finding the smaller bubbles.”
Mr Becket says emerging market and Japanese equities still looked attractively valued and UK corporate bond yields have improved as many investors are fearful about Brexit, which has dampened demand.
He added: “Central banks are scared of bursting these bubbles by putting up interest rates so we are being more selective than we ever have been about what to invest in. There are opportunities, but they are few and far between.”
Rob Pemberton, investment director at HFM Columbus, said that while equities are expensive they are not yet in bubble territory, with many firms delivering double digit earnings growth.
The outlook for bonds, he said, was less rosy and the asset had been in a bubble for “a few years now, inflated by the huge lungs of Central Bank quantitative easing programmes.” But Mr Pemberton said even so yields are more likely to move sideways for some time to come rather than burst.
He added: “The problem with bubbles is that you don’t usually label them as such until after they have actually burst.”